Household budgets showed signs of strain today after it emerged Britons saved the smallest slice of their incomes since early 1960.

The Office for National Statistics (ONS) said its household savings ratio - the proportion of disposable income not spent - fell to 2.1 per cent in the first quarter of 2007, compared to 3.9 per cent in the previous quarter.

The figure, which represented the lowest savings ratio since the first three months of 1960, came after a surprise hike in interest rates in January, following two previous increases in August and November.

While consumption was reasonably strong in the first quarter, analysts said the pressure on savings suggested that spending could now start to slow.

Disposable income

Howard Archer, chief UK economist at Global Insight, said: 'This reinforces our belief that consumers will have to tighten their belts to some degree over the coming months and spending will consequently be relatively muted going forward, particularly given that they are also facing rising interest rates and increased debt levels."

Household disposable income fell by 0.3 per cent in the first quarter and was up by a slender 0.3 per cent year-on-year.

The ONS said the fall in the savings ratio was also driven by reduced employers' contributions into pension funds, following high payments in the previous quarter.